Relationship Between Greenfield Investment and Economic Growth: Evidence From Bangladesh

Abstract

The key purpose of the study is to investigate the relationship between Greenfield investment and economic growth of Bangladesh using annual time series data during the period 2003–2020. The study employs Toda-Yamamoto (T-Y) tests of Granger causality method that performs Modified Wald Test (MWALD) in order to establish causal relation among different variables. There are three steps in implementing the T-Y procedure. The first step involves using different tests (ADF, PP, and KPSS test) to identify the maximum order of integration of the variable. The second step requires selecting the optimal lag length (p) based on several lag length selection criteria. In the third step, MWALD approach is used for testing the vector auto regression model for causality. The results of the tests (ADF, PP, and KPSS) concluded that the maximum order of integration of the variables is two. Then, the optimal lag length of two (p = 2) has been selected based on several lag length selection criteria. Finally, the findings reveal the evidence of unidirectional causality from Real Greenfield Foreign Direct Investment (RGFDI) to Real Gross Domestic Product (RGDP). The key contribution of this study is to investigate the Greenfield investments-growth relationship for a country like Bangladesh.